Edward West and Thabang Mokopanele
6 July 2009
Johannesburg — EVIDENCE that the global economic recovery may be faltering is likely to weigh on the oil price this week and strengthen the dollar against the euro as aversion to risk increases.
The price of Brent crude fell below $67 a barrel in London on Friday. Crude oil futures were expected to keep dropping this week after falling below 66 a barrel, 10% down on this year's high, marking a market correction.
London Brent crude fell $1,35 to $65,30. US crude fell $1,22 to $65,51 a barrel , extending the previous session's drop of nearly 4%. Oil reached a year-to-date high of $73,38 a barrel last Tuesday.
Crude oil was set for a third weekly drop after data released late last week showed US unemployment rose to the highest level in almost 26 years, signalling that the world's largest energy user remains burdened by recession.
A Bloomberg survey of analysts shows prices could fall again this week on speculation that US fuel inventories will climb with economic weakness curbing demand. "It has been a double whammy for crude oil," said Chris Jarvis, president of Caprock Risk Management in Hampton Falls, New Hampshire.
"You've got a stronger dollar and weaker-than-expected economic data, so that was a huge catalyst to start selling crude."
Stocks in SA crept higher on Friday. The JSE all share index added 48,88, or 0,2%, to 22234,35.
Stocks fell in Europe and Asia, extending the MSCI world index's longest weekly losing streak since March, as reports on retail sales and the service industry added to concern that the first global recession since the Second World War would persist.
The MSCI world index lost 0,1% to 946,36. The gauge of 1654 companies in 23 developed nations had slipped 1,8% through the week.
"People realise the economy isn't as bright as expected," said Franz Wenzel, deputy director of investment strategy at Axa Investment Managers in Paris.
"Over the next couple of weeks, or even months, the stock market will trade sideways at best," he said.
The dollar posted a weekly gain against the euro last week. It traded at 1,3978 to the euro in New York on Friday, from 1,4003 on Thursday, for a 0,5% rise on the week.
Last month's fall in US employment was more than forecast, and followed a decrease of 322000 in May. Payrolls were estimated to fall by 365000 after a 345000 fall initially reported for May, based on the median of 79 economists surveyed by Bloomberg.
The US unemployment rate jumped to 9,5%, the highest since 1983, from 9,4%.
"The data were much weaker than expected, and that is the main reason behind the oil price movement," said Thina Saltvedt, an analyst at Nordea Bank in Oslo.
"The physical oil market is still unbalanced. It is oversupplied, and there is a lot of oil in the market."
The Organisation of Petroleum Exporting Countries (Opec) was "satisfied" with the oil price, Opec president Jose Maria Botelho de Vasconcelos said .
The price was "good for all of us, the consumers and the producers", De Vasconcelos said.
"This price is a balanced price for us," he said at the Global Think- Tank Summit.
Meanwhile, oil market officials have launched an investigation into the activities of an alleged rogue trader who last week helped push prices to eight-month peaks, costing his company, PVM Oil Futures, nearly $10m.
ICE Futures Europe, London's oil market, is investigating Tuesday's unauthorised trading, after which crude futures surged to more than $73 a barrel.
With Bloomberg and Reuters
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